How the Appraisal Value directly impacts the Real Estate Transaction

Knowing the value of your home is important when it’s time to sell your house, when you pay taxes and if you are trying to take a mortgage out on it. When you are buying a house, knowing what the appraised value is, versus what the seller is asking, is also an important component to make an offer on the property.

How is a Home Value determined?

Even though there are many subjective parts of the appraisal, the process itself is straightforward and clear. An appraiser comes to the owners home and inspects it for, what they feel, make it valuable. This is where the subjective nature of an appraisal comes in.

The owner may personally like the convenience of window air conditioning units, but the appraiser will be deducting value because there isn’t central heat and air. If you live in Las Vegas, having central air conditioning is more valuable than some parts of the country with milder climates. Market desires play a big part in home values and can make a huge impact on an appraisal.

The appraiser will look at the age of the home and how it was made. The air conditioning/heating, plumbing, and wiring will also come under inspection as will the aesthetics of the home. Features, such as the number and size of bathrooms and closets will also be a factor in determining the home’s value. The presence or absence of a garage, attic, and basement will also determine the value of your home.

In addition to looking inside your home and inspecting it for structural damage, livability issues and size; the appraiser will also look at the outdoor areas of the property and the location in relation to your neighbors. How many homes are for sale, and the rate they are selling, in your neighborhood will also have an impact on your home’s worth. The presence of new construction in the area can also increase the value of your home.

Since most of these features are set and can’t be changed, there is little you can do to affect this part of the appraisal (on the buyer side or seller side). However, there are some aspects of your home (if you are the seller) that can be improved easily and quickly that can make a difference to the appraised value:

  • Clean up. As simple as this sounds, an appraiser will get a better impression of a clean and neat home as of one that is dirty or messy.
  • Improve appeal. Not just inside the house, but the property, as well. A fresh coat of paint or landscaping the yard will increase the appeal of the home. If that is out of reach, mowing the lawn, cleaning the exterior of the home and removing clutter will help the appraisal.
  • List your updates. Keeping track of improvements, especially since the last appraisal, can make the appraiser’s job easier and point out improvements that he might not notice. The improvements that the appraiser would be interested in are permanent improvements. New furniture doesn’t qualify, but new carpeting would.
  • Provide comparable examples. The value of your home will depend on many factors, but one of the largest is how much similar homes in the same neighborhood have sold for. By providing your appraiser with examples, it saves him time and effort and can lead to him valuing your property higher.
  • Assessments are just that. An assessment is a very specific form of appraisal, and one that only takes into account the value of your home for tax purposes. Depending on your location, these assessments are done with a computer and follow strict guidelines without the ability to make subjective decisions based on improvements or condition of the house. Because of the limitations in what the assessment model looks at, they should not be relied on for an appraisal.
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Give the appraiser room to work when he is there. Be available to answer any questions they may have but give them space to inspect the home, they know what they are looking for.

Knowing the value of your home is important when it’s time to sell your house, when you pay taxes and if you are trying to take a mortgage out on it. When you are buying a house, knowing what the appraised value is, versus what the seller is asking, is also an important component to make an offer on the property.
Knowing the value of your home is important when it’s time to sell your house, when you pay taxes and if you are trying to take a mortgage out on it. When you are buying a house, knowing what the appraised value is, versus what the seller is asking, is also an important component to make an offer on the property.

Who pays for the Appraisal?

This is a negotiable term of the offer that is often times dictated by the local market. For example,   in a seller’s market where the seller has more control in the deal, they may request the buyer pay for the appraisal, especially in a multiple offer situation. In a buyer’s market, the buyer will often ask the seller to pay for the appraisal. It is 100% negotiable and can be offered and countered at will.

If the appraisal returns a value that is less than the accepted offer, the loan will only be approved for the appraisal amount. The seller would need to bring the price down to appraisal amount or the buyer may need to pay the difference in cash. If this is an all cash transaction, nothing will probably change unless the buyer decides the home is now only worth the appraised amount and won’t complete the transaction. The true value of a home is what the buyer is willing to pay for it.

Long story short, it is a negotiable term in the purchase contract but depending on the market, purchase price, and other factors sometimes the seller may pay for it and then in other cases the buyer may pay for it.If you are selling your home, generally you will pay for the assessment. It is usually in your best interest to do so as you can then choose the appraiser and he is working in your best interest. If a buyer wishes to have his own appraisal done, having a counterbalance to his appraisal is not a bad idea.

The best and Worst Improvements increase home value

 Contrary to popular belief, not every improvement to your home will be reflected in its sellable value, so if you want to realize a return on your improvement budget, here are four types of project to avoid – and two others to give more serious consideration.


#1 A Home Office

You may feel that adding a quiet and comfortable study to your home will make it more attractive, but the truth is that only a small proportion of prospective buyers will truly have a use for such a room. For those who do have a need for it, they’ll probably want to refit their office to suit their own needs and preferences, and for those who don’t, a home study is simply a waste of a room that will need money spent on it in the future to convert it for a more useful purpose.

#2 Extensive, Individual Remodeling and Redecoration
The idea of dream decor can vary considerably from person to person, as anyone who’s viewed a home with a lurid 1970s bathroom suite can confirm. While giving your home a spruce up to make it more presentable may make a sale more likely, it won’t add any significant value to the property – and if you go overboard on a quirky and individual style, you could actually be turning people off and driving the price downwards.

#3 Swimming Pools

Even in those parts of the country that might expect to see it being highly used, adding a swimming pool to your yard is unlikely to represent a solid investment. Not only are they expensive to install compared to any value they may add, but many buyers will be actively discouraged by the prospect of a pool – they represent a lot of maintenance work, and for today’s affluent but busy professionals a gym membership is often a preferable option when it comes to fitness and relaxation.

#4 Improvements Above the Average Neighborhood Standard

Finally, before embarking on any ambitious renovations, look at the average prices of similar properties in the neighborhood. If your planned work will double the theoretical value of a $150,000 home, you’re unlikely to realize that $300k if other nearby properties are nowhere near that price bracket. If you go too far above the local price ceiling, you’re not likely to get all your money back, no matter how desirable your improvements may be.

Home Improvement Projects That Can Increase Property Value

There are two main types of home improvement that generally have a decent chance of earning back the money you’ve spent on them. The first is any work which makes your property larger – extra rooms, attic conversions, extensions; all of these will appreciably raise the value of a property.

The second good investment is in modernizing the two most important rooms in most homes, namely the kitchen and the bathroom. Whilst bearing in mind the previous advice about not carrying out too much individualistic decoration and remodeling, no home buyer wants to move into a house and then endure months of disruption as these two rooms, used daily, are torn apart and rebuilt.

It follows that bringing the kitchen and bathroom up to a good, modern standard – although without too many specialist features with only limited appeal – will stand a seller in good stead with prospective buyers, and if you work to a sensible budget, you can expect to see that added value properly reflected in the selling price.

Achieving the price you think your home is worth is inevitably something of a lottery, but if you always bear in mind the broad appeal and usefulness of any improvements you make, you’re less likely to spend more than you can feasibly recoup when you come to sell your home.

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